New Jersey Law

Appellate Division Rejects Tax Court Adjustments

In a recently issued unpublished opinion, the Appellate Division reversed and remanded a Tax Court case where the judge substituted his own judicial experience and field expertise to arrive at a factual finding that was not supported by the evidence in the trial record. The Appellate Division held that the judge’s findings fell outside of the Tax Court’s right to make its own independent assessments based on the evidence presented.

Mibar, LLC v. Elizabeth City involved an instance where the plaintiff’s expert used the income valuation approach to estimate the value of a “freestanding fast food facility.” The taxpayer’s expert first analyzed the property’s projected market rental income based on five comparable property leases. In order to account for the fact that the comparable properties were newer than the plaintiff’s property, the expert applied a downward 7.5 % value adjustment. The expert also testified that there would be little to no difference in value between a standalone fast food facility and a similar fast food facility attached to a strip mall, and therefore no adjustments would be warranted for such a distinction.

The Tax Court judge rejected the expert’s application of the 7.5 % downward adjustment. Based on the judge’s experience with the plaintiff’s property in other tax appeal matters, the Tax Court judge reasoned that no adjustment was warranted to account for difference in quality. The judge similarly used his own background knowledge to support application of a 5 % upward adjustment, disagreeing with the expert’s testimony that no adjustment was warranted for standalone establishments. Tax Court judges are recognized to have special expertise in their field and are accorded a high level of deference on appeal, with the ability to make independent valuation assessments based on the evidence presented. As such, their factual findings are reversible only if they are determined to be arbitrary or lacking substantial evidentiary support on record.

The Appellate Division nonetheless reversed and remanded, noting that although Tax Court judges have substantial latitude to accept or reject expert testimony within reason, the judge erred in basing his decision on his own personal knowledge and experience instead of on the evidence presented on record.

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